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Can I get a Mortgage on a Condo in FL? Maybe...

Posted 05-20-2012 at 11:34 AM by Sunshine Rules

Condominiums were especially hard hit in the recent market downturn in Florida for a number of reasons.

Therefore guidelines for lending on condos has been significantly tightened by lenders.
Condo loans now have to jump through two hoops. First the borrower has to qualify. Then the condo association has to qualify.

Primary residence and second home condo purchases are also treated differently.

There is no Private Mortgage Insurance (PMI) currently available in Florida and local lenders have basically stopped doing second mortgages for any properties. That means you'll need 20% down for a primary residence condo purchase, unless both buyer and complex meet the criteria for a FHA loan. If you are buying the unit as a second home, you're going to need a 30% down payment. That is, IF you can find a lender willing to finance a mortgage for a condominium.

Fannie Mae and Freddie Mac have completely overhauled their criteria for approving a condo complex for financing in the past few years. The complex will need to qualify for a limited review status, as the new guidelines now require condo complexes to have reserves for their catastrophic insurance deductibles. Very few condo complexes currently have such reserves in place.

Other requirements under Fannie/Freddie are:

Existing condo complexes cannot have 15% or more of their total units currently in default on their assessments (30 days or more late).

At least 50% of the units must be owner occupied - owners who use their unit as a second home are grouped in with investors/rentals.

The complex can have no pending litigation.

No weekly rentals, check in desks or daily maid services are allowed. These types of units are strictly viewed as condo hotels and are not eligible for financing.

Hazard insurance is required of all units in the condominium and the coverage must include contents (walls-in) insurance for each individual unit.

Complexes are ineligible for financing where a single entity (the same individual, investor group, partnership, or corporation) owns more than 10 percent of the total units in the project.

All amenities must be completed if the development is more than 12 months old.

The association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

Appraisers must supply the pertinent condo information letter data on the appraisal form under the Project Information section and it must be complete. Many complexes, on the advice of counsel, are still refusing to give out any such data, especially the relevant rental information. If you can't get it, you cannot qualify for financing. Therefore, buyers who want to obtain financing should attempt to get the condo information letter filled out by the management company first, even if you have to pay a fee.

Buyers can ask condominium managers if they have recently completed a homeowners' association certification or questionnaire, which provides information on condo fee delinquencies, insurance and other criteria that affect eligibility for loans.

Local lenders should also be able to assist buyers in determining if a particular condo complex meets Fannie or Freddie guidelines for loans.

Condos that are not approved for FHA or Fannie Mae financing are known as "nonwarrantable" and offer few options for buyers or current owners looking to refinance. Buyers can either pay cash or they can look for a local bank that is willing to lend, but they should be prepared to make a down payment of 50 percent or more, have excellent credit and be prepared to pay a much higher interest rate.

If you are looking to obtain a mortgage to purchase a condo, villa or townhome, it is especially important do your homework first and see if the condo community meets the financing eligibility criteria.
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